Private Wealth — Netting Rich Returns

March 9, 2009, Ethical Corporation — High net worth individuals — those who own at least $1m in financial assets — are a major source of investment worldwide. This 10-million-strong global elite has combined assets of $40tn, according to the latest annual world wealth report published by Capgemini and Merrill Lynch.

The financial crisis may have dented the numbers, but the total investible income of the world’s wealthy few remains staggering. The average high net worth individual owned $4m in financial assets at the end of 2007, while the number of emerging market-millionaires is growing. Rich private investors will not vanish any time soon.

Yet for all their combined wealth and power, the world’s richest have to date been overlooked by promoters of sustainable investment. Ethical investment specialists and campaigners have become more influential in recent years, but so far they have tended to focus on converting large institutional investors, such as insurance companies or pension funds, to their cause.

They are having some success with the big institutions, as shown by growing support for the UN Principles for Responsible Investment. More than 200 asset managers have signed up to the initiative, agreeing to align their investments with the interests of society and the environment. But private wealth remains an untapped resource for sustainable investment.

Rising demand
UN PRI executive director James Gifford says: “High net worth individuals constitute a significant part of the market and one that is sometimes overlooked by the responsible investment sector. Historically there has been a tendency to equate wealthy individuals with philanthropy, but this is increasingly a misconception.”

The handful of studies looking at the role of high net worth individuals in sustainable investment find that demand from private clients for ethical financial products is rising, but it could be better served. Research has found that low awareness and understanding of sustainability among both advisers and clients means private wealth is not yet a major source of capital for sustainable business worldwide.